My parent’s have their ONT inside a basement cabinet, where all the house ethernet cables terminate. One of those cables runs up to their office, where the main Wi-Fi router is located (Plume homepod provided by their ISP).
Could they setup their network similar to what’s shown in the diagram where the WAN and LAN traffic passes through the same ethernet cable? If so, are there any specific network settings that should be enabled to prevent any issues?
This setup doesn’t make any sense. You need to route all traffic from the ONT into a router, and then into switches and access points.
Any other topography is unnecessarily complicated and a losing game.